The Federal Reserve took an aggressive step to combat rising inflation on Wednesday by announcing another larger-than-usual interest rate hike of three-quarters of a percentage point. The increase comes as central bank officials face a tough balancing act: curbing rising prices amid growing worries of an economic recession.
The latest increase brings the federal funds rate between 2.25% and 2.50%, which is where it stood at its most recent high in the summer of 2019 before the coronavirus pandemic.
This marks the fourth increase in interest rates of the year as consumer prices rose at the fastest pace in more than 40 years. Five months ago, the federal funds rate was near zero percent. At its June meeting, the Federal Open Market Committee raised the federal funds rate by a more aggressive 75 basis points for the first time in nearly 30 years, following increases of 25 basis points and 50 basis points at meetings in March and May, respectively.
With consumer prices more than 9% higher than a year ago, further rate increases are expected through the end of the year. At their meeting last monthFed officials projected the rate would rise to more than 3% by 2023. The committee will meet again in September, November and December.
Economists and investors will be watching to see what guidance Federal Reserve Chairman Jerome Powell will give on future meetings. In a note on Monday, Deutsche Bank said its economics team expects hikes of 50 basis points in September and November before a 25 basis point increase in December.
The increase in the federal funds rate has led to higher borrowing costs for Americans. Debt with variable rates, such as credit cards and home equity lines of credit, will be the hardest hit, according to Greg McBride, chief financial analyst at Bankrate.com.
“Consumers should look for low-cost credit card balance transfer offers and do so urgently to insulate themselves from further rate increases and make progress in paying down debt,” McBride said. “Ask your lender if fixing the interest rate on your outstanding home equity balance is an option.”
The increase in the federal funds rate comes as several other key economic data are scheduled to be released this week. On Thursday, the Commerce Department will release its second-quarter 2022 GDP report, which could show further signs that the U.S. is in recession after the measure of economic activity declined in the first quarter. year.
On Monday, President Biden said during an event that the United States will not be in recession, noting that the unemployment rate is approaching its pre-pandemic level of 3.6 percent. Over the weekend, Treasury Secretary Janet Yellen, who also previously served as chair of the Federal Reserve, acknowledged in an interview that the economy is slowing, but said it’s not a slowing economy. recession The National Bureau of Economic Research determines whether the United States is in a recession. Yellen argues that the economy is in a period of transition.
The Commerce Department will also release its latest report on the Personal Consumption Expenditure Price Index for June, the preferred inflation gauge used by the Federal Reserve, on Friday.
This story will be updated as it develops.
- In:
- Jerome Powell
- Economy
- inflation
- Federal Reserve
- Federal Reserve Board
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